Net revenue of $27.5 billion, down 2% from the prior year and up 4% in
constant currency

GAAP operating profit down 14% to $2.2 billion; GAAP earnings per
share $0.67, down from $0.80 a year earlier

Non-GAAP operating profit up 8% to $3.0 billion; non-GAAP earnings per
share $0.91, up from $0.86 a year earlier

Cash flow from operations of $3.9 billion, up 15% from the prior year

Record Services profit of $1.3 billion

PALO ALTO, Calif. — (BUSINESS WIRE) — August 18, 2009 —
HP (NYSE:
HPQ) today announced financial results for its third fiscal
quarter ended July 31, 2009, with net revenue of $27.5 billion, down 2%
from a year earlier and up 4% when adjusted for the effects of currency.

In the third quarter, GAAP operating profit was $2.2 billion and GAAP
diluted earnings per share (EPS) was $0.67, down from $0.80 in the
prior-year period. Non-GAAP operating profit was $3.0 billion, with
non-GAAP diluted EPS of $0.91, up from $0.86 in the prior-year period.
Non-GAAP financial information excludes $568 million of adjustments on
an after-tax basis, or $0.24 per diluted share, related primarily to
amortization of purchased intangible assets, restructuring charges and
acquisition-related charges.

“HP’s performance this quarter is a result of our strong business
portfolio, efficient cost structure and scale. We made positive gains in
extending our market leadership in key segments and strengthening our
competitive position,” said Mark Hurd, HP chairman and chief executive
officer. “Business is stabilizing, and we are confident that HP will be
an early beneficiary of an economic turnaround and will continue to
outperform when conditions improve.”

Revenue grew 8% in the Americas to $12.6 billion. Revenue declined 12%
in Europe, the Middle East and Africa and 4% in Asia Pacific to $9.9
billion and $5.0 billion, respectively. When adjusted for the effects of
currency, revenue grew 11% in the Americas while declining 2% in Europe,
the Middle East and Africa while Asia Pacific was flat. Revenue from
outside of the United States in the third quarter accounted for 62% of
total revenue, with revenue in the BRIC countries (Brazil, Russia, India
and China) declining 6% over the prior-year period while accounting for
10% of total HP revenue.

Services

Services
revenue increased 93% to $8.5 billion due primarily to the EDS
acquisition. Infrastructure Technology Outsourcing posted revenue of
$3.9 billion while Technology Services, Application Services and
Business Process Outsourcing posted revenue of $2.4 billion, $1.4
billion and $711 million, respectively. Operating profit was $1.3
billion, or 15.2% of revenue, up from $567 million, or 12.9% of revenue,
in the prior-year period. The EDS integration is tracking ahead of plan.

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported total revenue of $3.7
billion, down 23%. Storage revenue declined 21%, with the midrange EVA
product line down 23%. Industry Standard
Server
revenue declined 21% and Business Critical Systems revenue declined 30%,
while ESS blade revenue was down 14%. Operating profit was $356 million,
or 9.7% of revenue, down from $544 million, or 11.5% of revenue, in the
prior-year period.

HP Software

HP
Software revenue declined 22% to $847 million. Business Technology
Optimization declined 22%, and Other Software revenue declined 23%.
Operating profit was $153 million, or 18.1% of revenue, up from $135
million, or 12.4% of revenue, in the prior-year period.

Personal Systems Group

Personal Systems Group (PSG) posted an increase of unit shipments of 2%
and maintained the leading market position in PCs worldwide. PSG revenue
declined 18% to $8.4 billion.
Notebook
revenue for the quarter was down 10%, while
Desktop
revenue declined 26%. Commercial client revenue was down 22%, while
Consumer client revenue decreased 13%. Operating profit was $386
million, or 4.6% of revenue, down from $587 million, or 5.7% of revenue,
in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue declined 20% to $5.7 billion.
Supplies revenue was down 13% due in part to continued channel inventory
realignment, while Commercial hardware revenue and Consumer hardware
revenue declined 37% and 21%, respectively.
Printer
unit shipments decreased 23%, with Commercial printer hardware units
down 42% and Consumer printer hardware units down 16%. Operating profit
was $960 million, or 17.0% of revenue, versus $1.0 billion, or 14.8% of
revenue, in the prior-year period.

HP generated $3.9 billion in cash flow from operations for the third
quarter. Inventory ended the quarter at $5.9 billion, down 10 days.
Accounts receivable of $14.7 billion was up 4 days. Accounts payable
ended the quarter at $12.8 billion, down 7 days. HP’s dividend payment
of $0.08 per share in the third quarter resulted in cash usage of $191
million. HP utilized $999 million of cash during the third quarter to
repurchase approximately 28 million shares of common stock in the open
market. HP exited the quarter with $13.7 billion in gross cash.

Outlook

HP expects fourth quarter FY09 revenue to be up approximately 8%
sequentially. Fourth quarter FY09 non-GAAP diluted EPS is expected to be
approximately $1.12. Fourth quarter FY09 non-GAAP diluted EPS estimates
exclude after-tax costs of approximately $0.15 per share, related
primarily to the amortization of purchased intangibles, restructuring
charges and acquisition-related charges. On a GAAP basis, fourth quarter
FY09 diluted EPS is expected to be approximately $0.97.

For the full year 2009, HP expects revenue and earnings to be in-line
with the mid-point of the outlook range provided on May 19, 2009.

More information on HP’s quarterly earnings, including additional
financial analysis and an earnings overview presentation, is available
on HP’s Investor Relations website at
www.hp.com/investor/home.

HP, the world’s largest technology company, simplifies the technology
experience for consumers and businesses with a portfolio that spans
printing, personal computing, software, services and IT infrastructure.
More information about HP is available at
http://www.hp.com/.

Use of non-GAAP financial information

To supplement HP’s consolidated condensed financial statements presented
on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP
operating margin, non-GAAP net earnings, non-GAAP diluted earnings per
share and gross cash. HP also provides forecasts of non-GAAP diluted
earnings per share. A reconciliation of the adjustments to GAAP results
for this quarter and prior periods is included in the tables below. In
addition, an explanation of the ways in which HP management uses these
non-GAAP measures to evaluate its business, the substance behind HP
management’s decision to use these non-GAAP measures, the material
limitations associated with the use of these non-GAAP measures, the
manner in which HP management compensates for those limitations, and the
substantive reasons why HP management believes that these non-GAAP
measures provide useful information to investors is included under “Use
of Non-GAAP Financial Measures” after the tables below. This additional
non-GAAP financial information is not meant to be considered in
isolation or as a substitute for operating profit, operating margin, net
earnings, diluted earnings per share, or cash and cash equivalents
prepared in accordance with GAAP.

EDS acquisition

HP completed its acquisition of Electronic Data Systems Corporation on
August 26, 2008. Results of, and comparisons to, the three and nine
months ended July 31, 2008 do not include the results of operations of
EDS for those prior periods.

Forward-looking statements

This news release contains forward-looking statements that involve
risks, uncertainties and assumptions. If the risks or uncertainties ever
materialize or the assumptions prove incorrect, the results of HP may
differ materially from those expressed or implied by such
forward-looking statements and assumptions. All statements other than
statements of historical fact are statements that could be deemed
forward-looking statements, including but not limited to any projections
of revenue, margins, expenses, earnings, tax provisions, cash flows,
benefit obligations, share repurchases, acquisition synergies, currency
exchange rates or other financial items; any statements of the plans,
strategies, and objectives of management for future operations,
including execution of cost reduction programs and restructuring and
integration plans; any statements concerning the expected development,
performance or market share relating to products or services; any
statements regarding current or future macroeconomic trends or events
and the impact of those trends and events on HP and its financial
performance; any statements regarding pending investigations, claims or
disputes; any statements of expectation or belief; and any statements of
assumptions underlying any of the foregoing. Risks, uncertainties and
assumptions include macroeconomic and geopolitical trends and events;
execution and performance of contracts by HP and its suppliers,
customers and partners; the challenge of managing asset levels,
including inventory; the difficulty of aligning expense levels with
revenue changes; assumptions related to pension and other
post-retirement costs; expectations and assumptions relating to the
execution and timing of cost reduction programs and restructuring and
integration plans; the possibility that the expected benefits of
business combination transactions may not materialize as expected; the
resolution of pending investigations, claims and disputes; and other
risks that are described in HP’s Annual Report on Form 10-K for the
fiscal year ended October 31, 2008 and HP’s other filings with the
Securities and Exchange Commission, including HP’s Quarterly Report on
Form 10-Q for the fiscal quarter ended April 30, 2009. As in prior
periods, the financial information set forth in this release, including
tax-related items, reflects estimates based on information available at
this time. While HP believes these estimates to be meaningful, these
amounts could differ materially from actual reported amounts in HP’s
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
2009. In particular, determining HP’s actual tax balances and provisions
as of July 31, 2009 requires extensive internal and external review of
tax data (including consolidating and reviewing the tax provisions of
numerous domestic and foreign entities), which is being completed in the
ordinary course of preparing HP’s Form 10-Q. HP assumes no obligation
and does not intend to update these forward-looking statements.

(a) Stock-based compensation expense included under SFAS 123(R) was
as follows:

Cost of sales

$

41

$

48

$

34

Research and development

12

18

16

Selling, general and administrative

94

109

90

Acquisition-related charges

3

16

-

Total costs and expenses

$

150

$

191

$

140

(b) Tax benefit from stock-based compensation

$

(51

)

$

(59

)

$

(38

)

(c) For the prior year reporting periods presented, certain
pursuit-related costs previously reported as Cost of sales have been
realigned retroactively to Selling, general and administrative
expenses due to organizational realignments.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(Unaudited)

(In millions except per share amounts)

Nine months ended

July 31,
2009

July 31,
2008

Net revenue

$

83,602

$

84,761

Costs and expenses(a):

Cost of sales

63,924

63,846

(c)

Research and development

2,115

2,701

Selling, general and administrative

8,647

9,820

(c)

Amortization of purchased intangible assets

1,171

630

In-process research and development charges

6

13

Restructuring charges

602

19

Acquisition-related charges

182

-

Total costs and expenses

76,647

77,029

Earnings from operations

6,955

7,732

Interest and other, net

(589

)

98

Earnings before taxes

6,366

7,830

Provision for taxes(b)

1,154

1,613

Net earnings

$

5,212

$

6,217

Net earnings per share:

Basic

$

2.18

$

2.49

Diluted

$

2.13

$

2.41

Cash dividends declared per share

$

0.32

$

0.32

Weighted-average shares used to compute net earnings per share:

Basic

2,395

2,497

Diluted

2,442

2,577

(a) Stock-based compensation expense included under SFAS 123(R) was
as follows:

Cost of sales

$

141

$

106

Research and development

47

55

Selling, general and administrative

288

288

Acquisition-related charges

25

-

Total costs and expenses

$

501

$

449

(b) Tax benefit from stock-based compensation

$

(158

)

$

(130

)

(c) For the prior year reporting periods presented, certain
pursuit-related costs previously reported as Cost of sales have been
realigned retroactively to Selling, general and administrative
expenses due to organizational realignments.

Maturities and sales of available-for-sale securities and other
investments

-

103

Payments made in connection with business acquisitions, net

-

(348

)

Net cash used in investing activities

(990

)

(2,698

)

Cash flows from financing activities:

Repayment of commercial paper and notes payable, net

(2,417

)

(6,866

)

Issuance of debt

2,000

6,778

Payment of debt

(1,071

)

(1,181

)

Issuance of common stock under employee stock plans

443

936

Repurchase of common stock

(999

)

(3,038

)

Excess tax benefit from stock-based compensation

39

67

Dividends

(191

)

(576

)

Net cash used in financing activities

(2,196

)

(3,880

)

Increase in cash and cash equivalents

670

3,368

Cash and cash equivalents at beginning of period

12,851

10,153

Cash and cash equivalents at end of period

$

13,521

$

13,521

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

(In millions)

Three months ended

July 31,
2009

April 30,
2009

July 31,
2008(a)

Net revenue:

Services(b)

$

8,470

$

8,488

$

4,386

Enterprise Storage and Servers

3,660

3,456

4,741

HP Software

847

880

1,086

Technology Solutions Group

12,977

12,824

10,213

Personal Systems Group

8,432

8,191

10,254

Imaging and Printing Group

5,660

5,916

7,041

HP Financial Services

670

641

680

Corporate Investments

193

188

271

Total Segments

27,932

27,760

28,459

Eliminations of intersegment net revenue and other

(481

)

(409

)

(427

)

Total HP Consolidated

$

27,451

$

27,351

$

28,032

Earnings from operations:

Services(b)

$

1,289

$

1,172

$

567

Enterprise Storage and Servers

356

250

544

HP Software

153

157

135

Technology Solutions Group

1,798

1,579

1,246

Personal Systems Group

386

374

587

Imaging and Printing Group

960

1,074

1,042

HP Financial Services

53

46

51

Corporate Investments

(10

)

(19

)

26

Total Segments

3,187

3,054

2,952

Corporate and unallocated costs and eliminations

(81

)

(62

)

(85

)

Unallocated costs related to stock-based compensation expense

(132

)

(156

)

(120

)

Amortization of purchased intangible assets

(379

)

(380

)

(213

)

Restructuring charges

(362

)

(94

)

(5

)

Acquisition-related charges

(59

)

(75

)

-

Interest and other, net

(177

)

(180

)

23

Total HP Consolidated Earnings Before Taxes

$

1,997

$

2,107

$

2,552

(a) Certain fiscal 2009 organizational reclassifications have been
reflected retroactively to provide improved visibility and
comparability. For each of the quarters in fiscal year 2008, the
reclassifications resulted in the transfer of revenue and operating
profit among the Services, HP Software and Imaging and Printing
Group financial reporting segments. In addition, certain previously
allocated costs were reclassified to unallocated costs related to
stock-based compensation expense. There was no impact on the
previously reported financial results for the Enterprise Storage and
Servers, Personal Systems Group, HP Financial Services and Corporate
Investments segments.

(b) Includes the results of EDS which was acquired on August 26,
2008.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

(In millions)

Nine months ended

July 31,
2009

July 31,
2008(a)

Net revenue:

Services(b)

$

25,704

$

12,700

Enterprise Storage and Servers

11,064

14,341

HP Software

2,605

3,072

Technology Solutions Group

39,373

30,113

Personal Systems Group

25,410

31,116

Imaging and Printing Group

17,557

22,042

HP Financial Services

1,947

2,007

Corporate Investments

577

719

Total Segments

84,864

85,997

Eliminations of intersegment net revenue and other

(1,262

)

(1,236

)

Total HP Consolidated

$

83,602

$

84,761

Earnings from operations:

Services(b)

$

3,584

$

1,573

Enterprise Storage and Servers

1,011

1,872

HP Software

450

288

Technology Solutions Group

5,045

3,733

Personal Systems Group

1,195

1,759

Imaging and Printing Group

3,139

3,404

HP Financial Services

140

141

Corporate Investments

(48

)

40

Total Segments

9,471

9,077

Corporate and unallocated costs and eliminations

(119

)

(308

)

Unallocated costs related to stock-based compensation expense

(436

)

(375

)

Amortization of purchased intangible assets

(1,171

)

(630

)

In-process research and development charges

(6

)

(13

)

Restructuring charges

(602

)

(19

)

Acquisition-related charges

(182

)

-

Interest and other, net

(589

)

98

Total HP Consolidated Earnings Before Taxes

$

6,366

$

7,830

(a) Certain fiscal 2009 organizational reclassifications have been
reflected retroactively to provide improved visibility and
comparability. For each of the quarters in fiscal year 2008, the
reclassifications resulted in the transfer of revenue and operating
profit among the Services, HP Software and Imaging and Printing
Group financial reporting segments. In addition, certain previously
allocated costs were reclassified to unallocated costs related to
stock-based compensation expense. There was no impact on the
previously reported financial results for the Enterprise Storage and
Servers, Personal Systems Group, HP Financial Services and Corporate
Investments segments.

(b) Includes the results of EDS which was acquired on August 26,
2008.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

SEGMENT / BUSINESS UNIT INFORMATION

(Unaudited)

(In millions)

Three months ended

July 31,
2009

April 30,
2009

July 31,
2008(a)

Net revenue:

Infrastructure technology outsourcing

$

3,932

$

3,785

$

1,393

Technology services

2,404

2,441

2,614

Application services

1,384

1,502

336

Business process outsourcing

711

709

43

Other

39

51

-

Services(b)

8,470

8,488

4,386

Industry standard servers

2,262

1,988

2,874

Storage

820

818

1,038

Business critical systems

578

650

829

Enterprise Storage and Servers

3,660

3,456

4,741

Business technology optimization

563

568

718

Other

284

312

368

HP Software

847

880

1,086

Technology Solutions Group

12,977

12,824

10,213

Notebooks

4,802

4,697

5,350

Desktops

3,090

2,967

4,163

Workstations

299

287

463

Handhelds

32

47

90

Other

209

193

188

Personal Systems Group

8,432

8,191

10,254

Supplies

3,949

4,103

4,527

Commercial hardware

1,085

1,193

1,718

Consumer hardware

626

620

796

Imaging and Printing Group

5,660

5,916

7,041

HP Financial Services

670

641

680

Corporate Investments

193

188

271

Total Segments

27,932

27,760

28,459

Eliminations of intersegment net revenue and other

(481

)

(409

)

(427

)

Total HP Consolidated

$

27,451

$

27,351

$

28,032

(a) Certain fiscal 2009 organizational reclassifications have been
reflected retroactively to provide improved visibility and
comparability. For each of the quarters in fiscal year 2008, the
reclassifications resulted in the transfer of revenue among the
Services, HP Software and Imaging and Printing Group financial
reporting segments. In addition, revenue was transferred among the
business units within the Services, HP Software, Imaging and
Printing Group, and Personal Systems Group segments. There was no
impact on the previously reported financial results for the
Enterprise Storage and Servers, HP Financial Services and Corporate
Investments segments.

(b) Includes the results of EDS, which was acquired on August 26,
2008. The businesses included in the former consulting and
integration business unit were divided among the application
services and technology services business units and the HP software
segment. The businesses included in the former outsourcing services
business unit were divided among the infrastructure technology
outsourcing and business process outsourcing business units. The
infrastructure technology outsourcing, application services and
business process outsourcing business units were added with the
technology services business unit, and these four business units now
comprise the Services segment.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

SEGMENT / BUSINESS UNIT INFORMATION

(Unaudited)

(In millions)

Nine months ended

July 31,
2009

July 31,
2008(a)

Net revenue:

Infrastructure technology outsourcing

$

11,620

$

3,957

Technology services

7,296

7,640

Application services

4,478

984

Business process outsourcing

2,163

119

Other

147

-

Services(b)

25,704

12,700

Industry standard servers

6,572

8,680

Storage

2,551

3,058

Business critical systems

1,941

2,603

Enterprise Storage and Servers

11,064

14,341

Business technology optimization

1,725

2,006

Other

880

1,066

HP Software

2,605

3,072

Technology Solutions Group

39,373

30,113

Notebooks

14,406

16,387

Desktops

9,360

12,494

Workstations

919

1,415

Handhelds

136

281

Other

589

539

Personal Systems Group

25,410

31,116

Supplies

12,102

13,664

Commercial hardware

3,517

5,576

Consumer hardware

1,938

2,802

Imaging and Printing Group

17,557

22,042

HP Financial Services

1,947

2,007

Corporate Investments

577

719

Total Segments

84,864

85,997

Eliminations of intersegment net revenue and other

(1,262

)

(1,236

)

Total HP Consolidated

$

83,602

$

84,761

(a) Certain fiscal 2009 organizational reclassifications have been
reflected retroactively to provide improved visibility and
comparability. For each of the quarters in fiscal year 2008, the
reclassifications resulted in the transfer of revenue among the
Services, HP Software and Imaging and Printing Group financial
reporting segments. In addition, revenue was transferred among the
business units within the Services, HP Software, Imaging and
Printing Group, and Personal Systems Group segments. There was no
impact on the previously reported financial results for the
Enterprise Storage and Servers, HP Financial Services and Corporate
Investments segments.

(b) Includes the results of EDS, which was acquired on August 26,
2008. The businesses included in the former consulting and
integration business unit were divided among the application
services and technology services business units and the HP software
segment. The businesses included in the former outsourcing services
business unit were divided among the infrastructure technology
outsourcing and business process outsourcing business units. The
infrastructure technology outsourcing, application services and
business process outsourcing business units were added with the
technology services business unit, and these four business units now
comprise the Services segment.

(a) HP's basic earnings per share was calculated based on net
earnings and the weighted-average number of shares outstanding
during the reporting period.

(b) The diluted earnings per share included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options and vesting of restricted stock units,
except when such issuances would be anti-dilutive.

(a) HP's basic earnings per share was calculated based on net
earnings and the weighted-average number of shares outstanding
during the reporting period.

(b) The diluted earnings per share included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options, vesting of restricted stock units and
conversion of debt, except when such issuances would be
anti-dilutive.

(a) HP's basic earnings per share was calculated based on net
earnings and the weighted-average number of shares outstanding
during the reporting period.

(b) The diluted earnings per share included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options and vesting of restricted stock units,
except when such issuances would be anti-dilutive.

(a) HP's basic earnings per share was calculated based on net
earnings and the weighted-average number of shares outstanding
during the reporting period.

(b) The diluted earnings per share included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options, vesting of restricted stock units and
conversion of debt, except when such issuances would be
anti-dilutive.

Use of Non-GAAP Financial Measures

To supplement HP’s consolidated condensed financial statements presented
on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP
operating margin, non-GAAP net earnings, non-GAAP diluted earnings per
share and gross cash. HP also provides forecasts of non-GAAP diluted
earnings per share. These non-GAAP financial measures are not in
accordance with, or an alternative for, generally accepted accounting
principles in the United States. The GAAP measure most directly
comparable to non-GAAP operating profit is earnings from operations. The
GAAP measure most directly comparable to non-GAAP operating margin is
operating margin. The GAAP measure most directly comparable to non-GAAP
net earnings is net earnings. The GAAP measure most directly comparable
to non-GAAP diluted earnings per share is diluted net earnings per
share. The GAAP measure most directly comparable to gross cash is cash
and cash equivalents. Reconciliations of each of these non-GAAP
financial measures to GAAP information are included in the tables above.

Use and Economic Substance of Non-GAAP
Financial Measures Used by HP

Non-GAAP operating profit and non-GAAP operating margin are defined to
exclude the effects of any restructuring charges, charges relating to
the amortization of purchased intangible assets, acquisition-related
charges and in-process research and development charges recorded during
the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings
per share consist of net earnings or diluted net earnings per share
excluding those same charges. In addition, non-GAAP net earnings and
non-GAAP diluted earnings per share are adjusted by the amount of
additional taxes or tax benefit associated with each non-GAAP item. HP’s
management uses these non-GAAP financial measures for purposes of
evaluating HP’s historical and prospective financial performance, as
well as HP’s performance relative to its competitors. HP’s management
also uses these non-GAAP measures to further its own understanding of
HP’s segment operating performance. HP believes that excluding those
items mentioned above from these non-GAAP financial measures allows HP
management to better understand HP’s consolidated financial performance
in relationship to the operating results of HP’s segments, as management
does not believe that the excluded items are reflective of ongoing
operating results. More specifically, HP’s management excludes each of
those items mentioned above for the following reasons:

Restructuring charges consist of costs primarily related to severance
and benefits for employees terminated pursuant to a formal
restructuring plan, including strategic reallocations or workforce
reductions and early retirement programs. HP excludes these
restructuring costs (and any reversals of charges recorded in prior
periods) for purposes of calculating these non-GAAP measures because
it believes that these historical costs do not reflect expected future
operating expenses and do not contribute to a meaningful evaluation of
HP’s current operating performance or comparisons to HP’s past
operating performance.

Purchased intangible assets consist primarily of customer contracts,
customer lists, distribution agreements, technology patents, and
products, trademarks and trade names purchased in connection with
acquisitions. HP incurs charges relating to the amortization of these
intangibles, and those charges are included in HP’s GAAP presentation
of earnings from operations, operating margin, net earnings and net
earnings per share. Amortization charges for HP’s purchased intangible
assets are inconsistent in amount and frequency and are significantly
impacted by the timing and magnitude of HP’s acquisitions.
Consequently, HP excludes these charges for purposes of calculating
these non-GAAP measures to facilitate a more meaningful evaluation of
HP’s current operating performance and comparisons to HP’s past
operating performance.

In-process research and development charges relate to amounts assigned
to tangible and intangible assets to be used in research and
development projects that have no alternative future use and therefore
are charged to expense at the acquisition date. Charges for in-process
research and development in connection with HP’s acquisitions are
reflected in HP’s GAAP presentation of earnings from operations,
operating margin, net earnings and net earnings per share. In-process
research and development expenses are not indicative of HP’s ongoing
operating costs and are generally unpredictable. Accordingly, HP
believes that eliminating these expenses for purposes of calculating
these non-GAAP measures contributes to a meaningful evaluation of HP’s
current operating performance and comparisons to HP’s past operating
performance.

Beginning in the fourth quarter of fiscal 2008, HP incurred costs
related to its acquisition of Electronic Data Systems Corporation
(“EDS”), some of which were treated as non-capitalized expenses.
Because non-capitalized, acquisition-related expenses are inconsistent
in amount and frequency and are significantly impacted by the timing
and nature of HP’s acquisitions, HP believes that eliminating the
non-capitalized expenses relating to the EDS acquisition for purposes
of calculating these non-GAAP measures facilitates a more meaningful
evaluation of HP’s current operating performance and comparisons to
HP’s past operating performance.

Gross cash is a non-GAAP measure that is defined as cash and cash
equivalents plus short-term investments and certain long-term
investments that may be liquidated within 90 days pursuant to the terms
of existing put options or similar rights. HP’s management uses gross
cash for the purpose of determining the amount of cash available for
investment in HP’s businesses, funding strategic acquisitions,
repurchasing stock and other purposes. HP’s management also uses gross
cash for the purposes of evaluating HP’s historical and prospective
liquidity, as well as to further its own understanding of HP’s segment
operating results. Because gross cash includes liquid assets that are
not included in GAAP cash and cash equivalents, HP believes that gross
cash provides a more accurate and complete assessment of HP’s liquidity
and segment operating results.

Material Limitations Associated with
Use of Non-GAAP Financial Measures

These non-GAAP financial measures may have limitations as analytical
tools, and these measures should not be considered in isolation or as a
substitute for analysis of HP’s results as reported under GAAP. Some of
the limitations in relying on these non-GAAP financial measures are:

Items such as amortization of purchased intangible assets, though not
directly affecting HP’s cash position, represent the loss in value of
intangible assets over time. The expense associated with this loss in
value is not included in non-GAAP operating profit, non-GAAP operating
margin, non-GAAP net earnings and non-GAAP diluted earnings per share
and therefore does not reflect the full economic effect of the loss in
value of those intangible assets.

Items such as restructuring charges that are excluded from non-GAAP
operating profit, non-GAAP operating margin, non-GAAP net earnings and
non-GAAP diluted earnings per share can have a material impact on cash
flows and earnings per share.

HP may not be able to liquidate immediately the long-term investments
included in gross cash, which may limit the usefulness of gross cash
as a liquidity measure.

Compensation for Limitations
Associated with Use of Non-GAAP Financial Measures

HP compensates for the limitations on its use of non-GAAP operating
profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP
diluted earnings per share and gross cash by relying primarily on its
GAAP results and using non-GAAP financial measures only supplementally.
HP also provides robust and detailed reconciliations of each non-GAAP
financial measure to its most directly comparable GAAP measure within
this press release and in other written materials that include these
non-GAAP financial measures, and HP encourages investors to review
carefully those reconciliations.

Usefulness of Non-GAAP Financial
Measures to Investors

HP believes that providing non-GAAP operating profit, non-GAAP operating
margin, non-GAAP net earnings, non-GAAP diluted earnings per share and
gross cash to investors in addition to the related GAAP measures
provides investors with greater transparency to the information used by
HP’s management in its financial and operational decision-making and
allows investors to see HP’s results “through the eyes” of management.
HP further believes that providing this information better enables HP’s
investors to understand HP’s operating performance and to evaluate the
efficacy of the methodology and information used by management to
evaluate and measure such performance. Disclosure of these non-GAAP
financial measures also facilitates comparisons of HP’s operating
performance with the performance of other companies in HP’s industry
that supplement their GAAP results with non-GAAP financial measures that
are calculated in a similar manner.